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WPP Sticks to Growth Forecast for Year

WPP PLC, the world's largest advertising company by revenue, said Tuesday it still expects to post around 2% organic revenue growth this year as advertising markets continue to improve.

In a statement, coinciding with the group's annual general meeting in Dublin, WPP said organic revenue grew 2% in the first five months of the year, on a strong rebound in U.S. advertising spending and growth in Asia.

In the U.S., organic revenue growth—a closely watched metric in the ad industry that strips out acquisitions, disposals and currency movements—was up "well over 5%" in the first five months and over 7% in April and May, WPP said.

The U.K. has also improved since January, posting organic revenue growth of over 4% in both April and May, the company said. Continental Europe, however, remained flat in the first five months, with revenue in Western European markets still down slightly in the first five months as markets such as France and the Netherlands remain tough.

In Asia though, growth is booming, with organic revenue in mainland China up over 7%, and in India almost 12%.

WPP said it expects these improvements to continue, helped also by big global events such as the soccer World Cup and the Shanghai expo.

The business update follows a recent series of upbeat comments from advertising executives and market forecasters. Last Thursday, WPP's GroupM raised its forecast for global advertising spending to 3.5% from its previous forecast of 1%.

WPP Chief Executive
Martin Sorrell
said last week that the group's 2% organic revenue target was "probably on the conservative side."

Still, the group said it remains cautious amid fears in Europe of contagion from Greece, Portugal and Spain and fears of more austerity plans or fiscal stimulus withdrawal. Worries about growth in the U.S. later in the year are another reason to stay cautious, the company said.

"It has been a pretty bumpy ride - and it is not over yet. Nor, in one sense, will it ever be over," WPP said, adding that the company will continue to focus on improving profitability now that revenue is back to growth, as well as winning new business.

Sir Martin told the annual general meeting in Dublin: "In April and May, we've now gone back to the financial model we had before the crisis," with the operating margin up 0.5 percentage point each year.

He also said the company will use free cash to repay debt and small to medium-sized acquisitions up to £100 million ($151 million) in 2009 and 2010, and expects revenue growth in line with the market at flat to 5%.

He reiterated that margins could do better than the current target of a one-percentage-point improvement to 12.7% in 2010. "We feel comfortable with margins in excess of that," he said.

In an interview, Sir Martin said, "None of our competitors are talking about increased margins this year." He said he is happy with most analysts' margin improvement forecast of one to 1.3 percentage points.

"The first half of last year was extremely difficult," he said. "In the second half [of last year] we managed to get our costs along with our revenues. Having got it into balance we've now seen some growth."

On whether euro-zone governments and the U.S. will address their deficits or continue with a stimulus strategy, he said: "Politicians are in business to be reelected... They are more likely to inflate their way out of the crisis."

Sir Martin also told the meeting that last year clients were extremely focused on costs, but added: "In 2010, there's more variability, more opportunity for expansion, but it's very much a world that is moving at different speeds."